June 14, 2010
Huntington’s Criticized Proposed “Occupation” Tax Has Spread Through Kentucky’s Cities, Counties
By Tony Rutherford
Huntingtnnews.net Reporter
Huntington, WV (HNN) – Residents and nonresidents of the City of Huntington have , for now, prevailed in persuading Huntington City Council to re-think the proposed occupation tax. The tax, which is limited to one percent on income, brought strong constituent opposition, including threats to boycott downtown businesses.
Ashland, Ky. has relied on its occupation tax for year. In fact, the State of Kentucky allows municipalities, counties and boards of education to levy occupation taxes. Ashland has a 1.5% occupation tax rate and taxes both wages and profits. Paintsville, Prestonsburg, and Pikeville have the tax too.
WHY DOES ‘ASHLAND’ HAVE TWO MALLS? While the tax may be now accepted by residents and business, if my MEMORY serves me correctly, the Ashland user fee and occupation tax resulted at least in part the decision to build TWO MALLS --- Ashland Towne Centre (within the city limits) and Cedar Knoll Galleria (Kyova Mall, outside the city limits). The latter was also deemed closer to the interstate. One major retailer elected to flee Ashland – Sears. (Can anyone help me with further local history?)
Since so many entities in that state levy an occupation tax, many belong to the Kentucky Occupational License Association, which advocates for the taxes. (http://kyola.org).
The Bluegrass State has couched the interpretations and enactments of these fees / taxes as both license fees and occupational taxes. You can click here to obtain a list of communities imposing the tax along with the amount and contacts. http://www.kyola.org/Forms/2009%20Kentucky%20Communities%20Imposing%20an%20Occupational%20Tax_new_1.pdf
They are not income taxes
As defined and upheld by the Supreme Court of Kentucky, the Court determined the Louisville occupation tax valid, rejecting that it was an “income tax.” Under the holding, the Louisville ordinance “lays the tax upon the privilege of working within the City , and only measures the value of the privilege by the amount or earnings or net profit.” (City of Louisville v. Sebree, 214 S.W.2d 248)
Patrick v. City of Frankfort, Ky. (539 S.W.2d 275 (1976) determined an occupation taxes are “levied on the privilege of engaging in any occupation, business, trade or profession within the geographic boundary of the unit of government imposing the tax.”
Net vs. Gross
An examination of the listing of counties and other Kentucky entities imposing this type tax indicates that some choose to tax “gross” earnings while others prefer “net” earnings. Personal and business occupational taxes are contained in these statutes/ordinances. http://www.kyola.org/Forms/courtcasesaffectingol.pdf
Residents v. Non-Residents
The state supreme court has held that the imposition of “license taxes” cannot constitutionally discriminate in favor of residents of the city or state and against nonresidents. However, the entity can impose a nondiscriminatory license tax on “nonresidents who constantly use city streets to deliver goods to customers… but cannot apply the tax on non-residents who merely pass through the city..”
Exemptions
Among exceptions/limits or exemptions to the “license” or “occupation taxes” are investment funds, poll workers, National Guard members (their pay for active duty or training), banks, and multichannel video providers (like satellite television companies).
Nexus
The tax must pass constitutional thresholds of due process, qualify under the commerce clause, and potential taxpayers under Public Law 86-272, which “prohibits a state from imposing any tax on any company measured by net income that is derived from interstate commerce if the only business activities within the state by or on behalf of the company are the minimum activities described.”
Definitions become tricky , but essentially, if the company simply solicits sales of tangible personal property where the order is approved outside the state and delivery made from a location outside the state.
Protected against the tax in Kentucky are generally in-home offices (for an out of state concern), sales of advertising, setting up display racks, inventory checks, and training seminars. Independent contractors enjoy immunity for soliciting sales and making sales. They are allowed to maintain an office. (The contractor cannot maintain stock, except for display, otherwise, they lose their exemption.)
http://www.kyola.org/Forms/nexusoverview.pdf
JUST AN EXAMPLE
Bowling Green, Ky. imposes a 1.85% occupational tax. Here, for illustrative purposes, is a brief summary of the requirements in that municipality:
Local Businesses: A local business is one that either owns a properly zoned business site or has a valid lease of six months or more for such a site within the City limits. In addition, a business that involves regular and routine visits to an established customer base (such as water delivery, mail courier, etc.) may be deemed a local business. For local businesses there is a one-time registration fee of $50.00 due with the application. A cash bond of $275.00 may also be required.
Once registered, the business will receive an annual form to file based on the net income earned within Bowling Green at the rate of 1.85%. The form is called a Net Profit License Fee Return, and it is filed at the end of the business’ normal tax year. A copy of the federal return must accompany the completed City Net Profit Return. If a business finds it necessary to request a federal extension, they will also need to request an extension with the City by submitting a copy of the federal extension request along with 90% of the estimated amount that will be due on the return (the minimum amount accepted is $30.00).
If a business has employees, an occupational withholding fee of 1.85% must be withheld by the employer from all employee’s gross wages earned for work or services performed in the City. The employee tax applies even if the employee does not reside inside the City limits, because it is based on where the work is performed, not residency. Larger businesses file and pay this fee monthly, while small businesses file on a quarterly basis.
Transient Registrations: Businesses that do not qualify as a “local business,” will normally fall under the definition of a transient business, contractor, professional services, or peddler. Registration fees for transient forms of business are based on the number of days and the number of employees/representatives that entity will have while engaging in business within the City. Businesses registering as transient are not required to submit the employee withholding fees or annual net profit return.
http://www.bgky.org/finance/occupationallicense.php
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Huntington’s Criticized Proposed “Occupation” Tax Has Spread Through Kentucky’s Cities, Counties
By Tony Rutherford
Huntingtnnews.net Reporter
Huntington, WV (HNN) – Residents and nonresidents of the City of Huntington have , for now, prevailed in persuading Huntington City Council to re-think the proposed occupation tax. The tax, which is limited to one percent on income, brought strong constituent opposition, including threats to boycott downtown businesses.
Ashland, Ky. has relied on its occupation tax for year. In fact, the State of Kentucky allows municipalities, counties and boards of education to levy occupation taxes. Ashland has a 1.5% occupation tax rate and taxes both wages and profits. Paintsville, Prestonsburg, and Pikeville have the tax too.
WHY DOES ‘ASHLAND’ HAVE TWO MALLS? While the tax may be now accepted by residents and business, if my MEMORY serves me correctly, the Ashland user fee and occupation tax resulted at least in part the decision to build TWO MALLS --- Ashland Towne Centre (within the city limits) and Cedar Knoll Galleria (Kyova Mall, outside the city limits). The latter was also deemed closer to the interstate. One major retailer elected to flee Ashland – Sears. (Can anyone help me with further local history?)
Since so many entities in that state levy an occupation tax, many belong to the Kentucky Occupational License Association, which advocates for the taxes. (http://kyola.org).
The Bluegrass State has couched the interpretations and enactments of these fees / taxes as both license fees and occupational taxes. You can click here to obtain a list of communities imposing the tax along with the amount and contacts. http://www.kyola.org/Forms/2009%20Kentucky%20Communities%20Imposing%20an%20Occupational%20Tax_new_1.pdf
They are not income taxes
As defined and upheld by the Supreme Court of Kentucky, the Court determined the Louisville occupation tax valid, rejecting that it was an “income tax.” Under the holding, the Louisville ordinance “lays the tax upon the privilege of working within the City , and only measures the value of the privilege by the amount or earnings or net profit.” (City of Louisville v. Sebree, 214 S.W.2d 248)
Patrick v. City of Frankfort, Ky. (539 S.W.2d 275 (1976) determined an occupation taxes are “levied on the privilege of engaging in any occupation, business, trade or profession within the geographic boundary of the unit of government imposing the tax.”
Net vs. Gross
An examination of the listing of counties and other Kentucky entities imposing this type tax indicates that some choose to tax “gross” earnings while others prefer “net” earnings. Personal and business occupational taxes are contained in these statutes/ordinances. http://www.kyola.org/Forms/courtcasesaffectingol.pdf
Residents v. Non-Residents
The state supreme court has held that the imposition of “license taxes” cannot constitutionally discriminate in favor of residents of the city or state and against nonresidents. However, the entity can impose a nondiscriminatory license tax on “nonresidents who constantly use city streets to deliver goods to customers… but cannot apply the tax on non-residents who merely pass through the city..”
Exemptions
Among exceptions/limits or exemptions to the “license” or “occupation taxes” are investment funds, poll workers, National Guard members (their pay for active duty or training), banks, and multichannel video providers (like satellite television companies).
Nexus
The tax must pass constitutional thresholds of due process, qualify under the commerce clause, and potential taxpayers under Public Law 86-272, which “prohibits a state from imposing any tax on any company measured by net income that is derived from interstate commerce if the only business activities within the state by or on behalf of the company are the minimum activities described.”
Definitions become tricky , but essentially, if the company simply solicits sales of tangible personal property where the order is approved outside the state and delivery made from a location outside the state.
Protected against the tax in Kentucky are generally in-home offices (for an out of state concern), sales of advertising, setting up display racks, inventory checks, and training seminars. Independent contractors enjoy immunity for soliciting sales and making sales. They are allowed to maintain an office. (The contractor cannot maintain stock, except for display, otherwise, they lose their exemption.)
http://www.kyola.org/Forms/nexusoverview.pdf
JUST AN EXAMPLE
Bowling Green, Ky. imposes a 1.85% occupational tax. Here, for illustrative purposes, is a brief summary of the requirements in that municipality:
Local Businesses: A local business is one that either owns a properly zoned business site or has a valid lease of six months or more for such a site within the City limits. In addition, a business that involves regular and routine visits to an established customer base (such as water delivery, mail courier, etc.) may be deemed a local business. For local businesses there is a one-time registration fee of $50.00 due with the application. A cash bond of $275.00 may also be required.
Once registered, the business will receive an annual form to file based on the net income earned within Bowling Green at the rate of 1.85%. The form is called a Net Profit License Fee Return, and it is filed at the end of the business’ normal tax year. A copy of the federal return must accompany the completed City Net Profit Return. If a business finds it necessary to request a federal extension, they will also need to request an extension with the City by submitting a copy of the federal extension request along with 90% of the estimated amount that will be due on the return (the minimum amount accepted is $30.00).
If a business has employees, an occupational withholding fee of 1.85% must be withheld by the employer from all employee’s gross wages earned for work or services performed in the City. The employee tax applies even if the employee does not reside inside the City limits, because it is based on where the work is performed, not residency. Larger businesses file and pay this fee monthly, while small businesses file on a quarterly basis.
Transient Registrations: Businesses that do not qualify as a “local business,” will normally fall under the definition of a transient business, contractor, professional services, or peddler. Registration fees for transient forms of business are based on the number of days and the number of employees/representatives that entity will have while engaging in business within the City. Businesses registering as transient are not required to submit the employee withholding fees or annual net profit return.
http://www.bgky.org/finance/occupationallicense.php
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